Stock Market

New RBI capital rules lift Bank Nifty 5%; Sensex zooms 464 pts


Chillicious Team

Bulls roared again on Wednesday as equity benchmarks posted biggest second-day rally in seven years with the Sensex rising 500 points intraday, driven by banks after the Reserve Bank of India changed rules that determine banks’ regulatory capital. It was an addition to 777-point rally in previous session.

The 30-share BSE Sensex surged 463.63 points or 1.95 percent to 24242.98 and the 50-share NSE Nifty climbed 146.55 points or 2.03 percent to 7368.85. The broader markets too traded in line with benchmarks as the BSE Midcap index gained 1.9 percent and Smallcap rose 2.2 percent. About three shares advanced for every share declining on the BSE.

Ajay Srivastava of Dimensions Consulting said the current bounceback may have some more legs to go but till economic fundamentals solidly change, investors must be cautious to not over invest.

He also said the RBI’s move yesterday to tweak capital norms will help banks shore up capital but this may be a followed by another NPA hit in the fourth quarter.

Street was expecting some rate cut from the RBI after the Union Budget provided sufficient space but the RBI tweaked capital rules that will provide additional capital to banking sector. It is a big relief to banks that have been struggling with higher NPA issue.

Bank Nifty surged 4.7 percent after the RBI on Tuesday relaxed capital rules for banks to help meet Basel-III norms. As per the new rules, banks will be allowed to recognise part of their real estate assets, foreign currency assets and deferred tax assets as capital with suitable hair cut.

This measure is a big positive particularly for State Bank of India because the bank never had revaluation reserves on balance sheet, Ravikant Bhat of IDBI Capital said, adding other beneficiary could be Corporation Bank.

State Bank of India rallied 11.5 percent followed by ICICI Bank, Punjab National Bank and Bank of Baroda with 7 percent upside.

More to come…